The sixth reform of the Belgian state: what will change for the energy sector?

The sixth reform of the Belgian State has been recently voted in the federal parliament. This reform includes the modification of the Special Act and, the transfer of many federal competences to the federated entities. Numerous sectors will be affected by this reform, amongst which the energy sector.

A. Context: the sixth reform

The sixth reform of the Belgian State, as negotiated at the governmental coalition since October 2011, consists of two main components. First, the reform of the State aims at fundamentally modifying the Special Finances Act, in substantially increasing the fiscal autonomy of the Regions. Second, it provides for a substantial transfer of federal competences to the federated entities (eq. to 17 billions EUR). Almost all sectors of the Belgian economical and social landscape are affected.

This newsletter focuses on this component of the reform, and specifically on the bulk of the reform for the energy sector, namely the energy tariffs.

The legislative process from the institutional agreement to legislation is being finalised. Precisely, on the transfer of competences aspect of the reform, the Parliament agreed on 19 December 2013 on a Project of Special Act. The last step of the legislative procedure is for the King to sign the Project of Special Act.

B. Energy: transfer of tariff competencies to the Regions

For the Energy Sector, amongst the Belgian Constitution and the Special Acts (requiring a 2/3 parliamentary majority to be modified), the Special Act of 8 August 1980 is relevant and is being modified by Article 19 of the aforementioned Project of Special Act, providing that the Regions will be transferred part of the tariff competence that currently is a fully federal competence.

1. The federal competence on energy tariffs before the reform

Before the reform, under article 6, §1, VII, of the Special Act of 8 August 1980, the federal State is the only State organ competent as to tariffs.

The Regions are competent for:

(i) distribution and local transportation of electricity via networks which nominal voltage was inferior or equal to 70 000 volts;

(ii) public distribution of gas.

Until today, any decision on "costs" (operational costs, projects, public service obligations) is regional, whereas any decision on "benefits" (tariffs) is of federal competence.

2. The transfer of part of the tariff competence to the Regions after the reform

Change of art. 6 Special Act: Article 19 of the aforementioned Project of Special Act provides for modifications to the text of article 6, §1, VII, of the Special Act on Institutional Reform of 8 August 1980.

General rule: The general rule is as follows. The federal State remains competent to some extent as regards tariffs, except for what is expressly transferred to the Regions by the Special Act. Further, the federal State is competent with regard to regional pricing policy (which deals with the supply price component, not with the network tariff component of energy prices). The federal State is still competent as regards tariffs of networks having transportation purpose operated by the transportation grid operator (being Elia for electricity and Fluxys for gas).

Competence of the Regions: Regions will now be competent for:

(i) distribution and local transportation of electricity via networks which nominal voltage is inferior or equal to 70 000 volts, including tariffs of electricity distribution networks;

(ii) public distribution of gas, including tariffs of gas public distribution networks.

Exception: However, the Regions will not be transferred the whole tariff competence on distribution networks. The federal State will remain competent for:

(i) tariffs of networks having transportation purpose and that are operated by the same network manager than the transportation network, with respect to low-voltage electricity distribution networks;

(ii) tariffs of networks having transportation purpose and that are operated by the same network manager than the transportation network, with respect to public distribution of gas.

Regulators?: Regional regulators (CWaPE in Wallonia, VREG in Flanders, BRUGEL in Brussels) will consequently be competent as regards the control of tariffs regarding public distribution of gas and electricity (low-voltage or low-pressure networks). It is expected that they will begin to exercise their new competence as from 1st July 2014.

What about "residual" tariffs?: It can be deduced from what is explained above that the federal State will have "residual" competence for energy tariffs, while the Regions will exercise an (expressly) "attributed" competence for distribution tariffs. In other words, when confronted to a type of tariff not expressly conferred upon to the Regions in this Special Act, the federal State should be considered to remain competent.

Scheme: The division of competences on tariffs between the federal and regional level can schematically summarised as follows:

3. Assessment

The reasons for the transfer of part of the tariff competence were commendable: the Regions were already competent as regards electricity and gas distribution for operation costs, investment decisions, distribution regulation, and so on, while the federal State was the one determining distribution tariffs. It seemed thus logical to transfer the distribution tariffs competence to the Regions in order to link "cost" decisions with "profit" (tariffs) decisions of the grid operators.

The regional regulators will now have to be well prepared by the (expected) set-off date of 1 July 2014 for managing their new tariffs competencies. Prior to this, regional legislators will need to implement by the expected set-off date the legislation necessary for imposing and executing the tariffs.

One can wonder with respect to the electricity tariff competencies why only distribution tariffs were transferred to the Regions, since Regions are competent both for distribution and local transportation of electricity on low-voltage networks. It could have been more coherent to transfer both the distribution tariff and the local transportation tariff competencies to the Regions.

Besides, the federal State remains competent to define the regional pricing policy. With this measure, the extent to which Regions can determine the tariffs of the distribution networks risks to be disproportionally undermined. As the Constitutional Court decided in its judgment of 15 October 1996, tariff schemes cannot be dissociated from pricing policy. This is however still the case in practice on the markets, also after this State reform. Much discussion can therefore be expected around this.

Other modifications

It should also to be noted that with the sixth reform the federal authority, which was previously competent for the national plan of infrastructure for the electricity sector, will be competent for the studies on energy supplies prospects.

The binding nature of the national plan of infrastructure for the electricity sector was indeed judged contrary to the European rules regarding free movements of goods, and was replaced by a study on energy supplies prospects (as determined in article 3 of the 29 April 1999 Belgian Electricity Act). It was therefore necessary for the Project of Special Act to reflect this modification.